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Poultry Meat and Products-U.S. Export and Price Developments
The financial crisis in Russia took its toll on U.S. poultry meat exports in 1998, dropping U.S. prices and the overall value of exports. Despite a 1999 outlook for slow global economic growth and constrained demand prospects which are expected to further erode U.S. export prospects, U.S. production is expected to strengthen as margins remain robust.
Overview
After experiencing a near decade of double-digit export growth, U.S. poultry meat exports faltered in 1998 as financial crisis in Russia's market stopped trade to that market in its tracks. Despite a last minute rally by U.S. broiler exports in December 1998, poultry meat exports came in 2 percent below 1997-the first export decline since 1984.
The 1999 outlook for U.S. poultry meat shipments remains lackluster. Slowing international demand for poultry meat, aggravated by sluggish and uncertain demand from the Russian market in the aftermath of the ruble devaluation in August 1998, is expected to pressure poultry exports down an additional 5 percent in 1999.
Constrained export prospects for U.S. poultry meat in 1999 contrasts with the overall favorable outlook for the U.S. broiler industry. Despite low leg quarter prices, domestic broiler meat prices have remained robust and combined with low feed prices are generating favorable net returns for the industry. Consequently U.S. production is forecast to increase by 5 percent to 15.8 million tons.
Broiler Shipments End with a Bang, Value with a Whimper
In a surprising show of end-of-year strength, U.S. broiler exports jumped 50 percent in December 1998 from the previous month, pushing overall exports to yet another record of 2.12 million tons. A pre-Christmas seasonal rally in Russian imports underpinned the strong monthly increase. Despite the last minute rally in broiler shipments, overall 1998 exports to Russia, the U.S.'s major market, were down 27 percent for the year and accounted for 32 percent of U.S. exports compared to 1997's share of 44 percent.
The heavy dependence of the U.S. industry on the Russian market is revealed by the precipitous decline in leg quarter prices since the August devaluation of the Russian ruble. Leg quarter prices fell by more than half as Russian imports ground to a halt. This drop in prices led to a decline in the value of overall broiler meat exports, down 9 percent from 1997 to $1.7 billion.
Lower prices, and a slight recovery in consumer demand in Hong Kong/China, induced recovery in shipments to Hong Kong (up 13 percent), Mexico and Japan (both up 11 percent). Price responsiveness was revealed in some of the smaller markets in Latin America, the Caribbean, and the Middle East also, with shipments to those regions surging 42 percent in 1998.
Uncertainty characterizes the 1999 outlook for U.S. broiler meat with import demand hinging on the economic environment in Russia and China and the ability of the U.S. industry to adhere to Mexico's Avian Influenza (AI) regulations. In addition, the devaluation of the Brazilian Real will test the U.S.'s ability to compete effectively in the Japanese market.
Against these competing factors, U.S. poultry exports in 1999 are forecast to drop 5 percent to 2.4 million tons. As broiler meat shipments slide, forecast at 2 million tons, exports will account for 15 percent of domestic output, down from the peak of 17 percent in 1997.
Favorable Returns in 1998 Prompt Broiler Output Expansion
Sluggish demand for U.S. poultry meat in Russia, the U.S.'s largest export market, is occurring against a backdrop of surging broiler meat output in 1999. U.S. broiler production in 1998, beset by hatchery supply flock problems and higher heat-induced bird mortality, experienced the slowest output growth since 1982.
Constrained production gains and strong domestic demand from the fast food sector allowed the U.S. industry, despite record U.S. meat supplies and declining export prices, to maintain relatively high broiler prices in 1998. These robust prices, combined with the lowest feed costs since 1987, supported producer net returns in 1998 which were considerably higher than 5-year averages.
Favorable producer returns are prompting a forecast rise in U.S. broiler production of 5-6 percent in 1999. Indicators revealing the industry's planned expansion include large increases in the broiler-type chick hatch as well as a 3-5 percent increase in egg sets in incubators for broiler production. A steady increase in average weight gain as the industry moves to produce heavy broilers for cut-up also supports a higher production outlook.
Turkey Exports Take A Hit in 1998 but Industry Returns Positive
Despite a tripling in turkey shipments to Mexico in 1998, lower exports to Hong Kong dropped overall turkey exports 25 percent in both volume and value. Totaling nearly 200,000 tons in 1998, U.S. turkey exports generated $241 million for the U.S. industry.
Mexico continues to be the United States' major turkey market, with Mexican food processors in 1998 taking nearly 60 percent of U.S. exports or approximately 5 percent of U.S. production. With the exception of Mexico, Canada, and a few countries in Central America, turkey exports took a nose dive in 1998. Exports to Russia, a rapidly growing market until the advent of the financial crisis in August, dropped 10 percent from 1997. Turkey exports to this market in 1999 are unlikely to recover due to record EU restitutions for pork, a product that competes with turkey for use in processing.
Turkey exports are expected to continue their slide into 1999, with shipments projected at 195,000 tons, down 3 percent from 1998's reduced levels. Slower economic growth in Mexico in 1999, combined with continued constrained demand from Russian and Asian markets, are prompting this forecast drop in exports.
Despite the dismal export performance by the turkey industry in 1998, reduction in feed costs (29 percent below a year ago) and slight increases in turkey prices allowed producers to more than breakeven in early 1999.
Negative turkey returns for more than two and a half years prompted a 4-percent reduction in output in 1998. Expectations of break-even returns through mid-1999 will likely lead to a slight increase with growth later in the year.
For further information, contact Nancy Morgan, (202) 720-1372.
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